Stocks ended last week with another decline and the TSP stock funds added more varying degrees of losses, so it was another poor day, poor week, and ugly month for the stock market. The Dow shed another 500-points on Friday erasing Thursday's fleeting 458-point gain. Bonds continue to decline as well as yields remain buoyant despite the evidence of weakening economic data.
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The S&P 500 (C-fund) lagged losing 1.5% on Friday and 2.9% for the week while the S and I funds saw more moderate losses, but for the month of September, each of the stock funds gave up between 9% and 10%.
So here we are nine months into 2022 with one more quarter to go in the year. The month of October has a decent overall record but it is also notorious for some awful market melt-downs over the years. Here's the 30-year seasonality chart which would not include two of the more devastating market crashes from 1987 or 1029.
Chart provided courtesy of www.sentimentrader.com
You can see that there are pockets of good and bad days and weeks in October based on the percentage of times positive, but the average gains and losses are extreme because of the dramatic draw downs and rebounds in the volatile month.
With Friday's losses breaking below some key support, even on the weekly chart, individual investors as well as money managers could enter this week with some problems as stops get taken out below the prior lows, volatility increases, margin calls get sent out and that creates forced liquidation in accounts and eventually, after a more downside, we might see a high volume capitulation that will set up a decent snap back rally, but again the downside leading up to that may not be something you will want to play with. Volume did increase quite a bit on Friday as I will show in the daily chart down below.
The weekly chart shows the breakdown below both the June lows and the 200-week moving average, which will get a lot of attention from money managers. In early 2008 the S&P 500 started to flirt with that 200-week average and by the summer it was in full breakdown mode, which led to that year's waterfall like declines in September and October. So, after the successful test of the 200-week average in June, the S&P just fell through it last week, so unless we see some kind of a right shoulder rebound, this could fall quickly.
Yields spiked well above the trading channel last week, then fell later in the week and closed back in that channel. Yields are still elevated and this puts pressure on the stock market.
The dollar was also up last week but finally started to pull back off the extremes. There are open gaps that may need filled but there is also support that could keep it buoyant. A pullback in yields and / or the dollar would certainly be a welcomed by the stock market, but so far neither have broken down despite the reversals.
We got a second consecutive quarter of negative GDP after the second quarter's final estimate was -0.6%. That's basically the definition of a recession so if there were any questions about that...
The S&P 500 (C-fund) fell to new lows on Friday and the volume finally showed a non expiration day spike which means either some capitulation from the bulls or, as I mentioned above, we are seeing some forced liquidation due to margin calls, which could have the same effect. Either way, it's a better sign than just seeing no increase in volume while stocks tumble. The index remains in a congested area where the bulls and bears seem to be agreeing on price, but the weak close on Friday pushed the the S&P below some key support levels which could open the door to another leg down if buyers don't show up quickly.
The DWCPF (S-fund / small caps) remains above the June lows but the failure at the top of the open gap near 1570 may indicate some over head resistance, and the obvious bear flag is certainly not a favorable formation. So, there's trouble here despite some recent relative strength versus the S&P 500.
The EFA (I-fund) was down modestly on Friday, and although this chart clearly was the first to breakdown below the June lows, the losses for the year resemble that of the S&P 500 and the DWCPF, or C and S funds. It may have found some support at the bottom of its descending trading channel but the support line is descending at the rate of about 2.5 points per month.
The BND (bonds / F-fund) had been falling precipitously throughout August and September, although we did see a jump in the second half of last week. That could be a bear flag forming, but perhaps it could see a relief rally back up to the breakdown area. It is certainly due for relief and with the economy looking more and more shaky, yields could start to slip down and that could mean some upside in bonds prices and the F-fund.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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The S&P 500 (C-fund) lagged losing 1.5% on Friday and 2.9% for the week while the S and I funds saw more moderate losses, but for the month of September, each of the stock funds gave up between 9% and 10%.
So here we are nine months into 2022 with one more quarter to go in the year. The month of October has a decent overall record but it is also notorious for some awful market melt-downs over the years. Here's the 30-year seasonality chart which would not include two of the more devastating market crashes from 1987 or 1029.
Chart provided courtesy of www.sentimentrader.com
You can see that there are pockets of good and bad days and weeks in October based on the percentage of times positive, but the average gains and losses are extreme because of the dramatic draw downs and rebounds in the volatile month.
With Friday's losses breaking below some key support, even on the weekly chart, individual investors as well as money managers could enter this week with some problems as stops get taken out below the prior lows, volatility increases, margin calls get sent out and that creates forced liquidation in accounts and eventually, after a more downside, we might see a high volume capitulation that will set up a decent snap back rally, but again the downside leading up to that may not be something you will want to play with. Volume did increase quite a bit on Friday as I will show in the daily chart down below.
The weekly chart shows the breakdown below both the June lows and the 200-week moving average, which will get a lot of attention from money managers. In early 2008 the S&P 500 started to flirt with that 200-week average and by the summer it was in full breakdown mode, which led to that year's waterfall like declines in September and October. So, after the successful test of the 200-week average in June, the S&P just fell through it last week, so unless we see some kind of a right shoulder rebound, this could fall quickly.
Yields spiked well above the trading channel last week, then fell later in the week and closed back in that channel. Yields are still elevated and this puts pressure on the stock market.
The dollar was also up last week but finally started to pull back off the extremes. There are open gaps that may need filled but there is also support that could keep it buoyant. A pullback in yields and / or the dollar would certainly be a welcomed by the stock market, but so far neither have broken down despite the reversals.
We got a second consecutive quarter of negative GDP after the second quarter's final estimate was -0.6%. That's basically the definition of a recession so if there were any questions about that...
The S&P 500 (C-fund) fell to new lows on Friday and the volume finally showed a non expiration day spike which means either some capitulation from the bulls or, as I mentioned above, we are seeing some forced liquidation due to margin calls, which could have the same effect. Either way, it's a better sign than just seeing no increase in volume while stocks tumble. The index remains in a congested area where the bulls and bears seem to be agreeing on price, but the weak close on Friday pushed the the S&P below some key support levels which could open the door to another leg down if buyers don't show up quickly.
The DWCPF (S-fund / small caps) remains above the June lows but the failure at the top of the open gap near 1570 may indicate some over head resistance, and the obvious bear flag is certainly not a favorable formation. So, there's trouble here despite some recent relative strength versus the S&P 500.
The EFA (I-fund) was down modestly on Friday, and although this chart clearly was the first to breakdown below the June lows, the losses for the year resemble that of the S&P 500 and the DWCPF, or C and S funds. It may have found some support at the bottom of its descending trading channel but the support line is descending at the rate of about 2.5 points per month.
The BND (bonds / F-fund) had been falling precipitously throughout August and September, although we did see a jump in the second half of last week. That could be a bear flag forming, but perhaps it could see a relief rally back up to the breakdown area. It is certainly due for relief and with the economy looking more and more shaky, yields could start to slip down and that could mean some upside in bonds prices and the F-fund.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks so much for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
